Microsoft’s deal to buy Nokia’s phone business may enable the software maker to create a third “mobile-phone ecosystem.” Verizon’s complete takeover of its wireless business from Vodafone, meanwhile, “will enhance value across platforms” for the U.S.’s largest mobile-phone carrier.
So goes the jargon from Wall Street analysts and technology executives. There are, unsurprisingly, more prosaic — and comprehensible — reasons for the two technology deals announced last weekend.
The most likely explanation? Neither Microsoft nor Verizon wants to be the next BlackBerry, which stood still for too long and is now on the corporate equivalent of a death watch. Nokia, like BlackBerry, has stumbled badly in recent years.
Both deals show how U.S. fiscal and monetary policy affects corporate behavior. Microsoft will pay for its $7 billion purchase from a pile of unused cash sitting overseas. Like many other U.S. companies, Microsoft won’t bring its money back onshore unless Congress cuts tax rates on repatriated earnings.
Verizon will need to borrow heavily for its $130 billion purchase, and hopes to take advantage of low interest rates, compliments of the Federal Reserve. Once the central bank begins scaling back its bond purchases, rates will rise and the Vodafone acquisition will be more expensive.
The deal also implicates another policy dispute: the patent wars. Microsoft gets a trove of mobile-technology patents with Nokia, allowing it to follow in Google’s footsteps. Google paid $12.5 billion last year for Motorola, and got an arsenal of intellectual property with which to battle patent owners and potential licensees, including Apple.
In the context of U.S. policy, the two deals make eminent sense. Yet if Congress fixed corporate-tax laws so companies didn’t feel the need to stockpile cash offshore, and if patent laws encouraged innovation over litigation, these deals might have been less enticing. To truly reward shareholders and create wealth, though, the companies will have to think and act more strategically.
Those excitable analysts aren’t wrong when they say that smartphones are the future. Yet Microsoft and Nokia missed the smartphone revolution. Now they are betting they can help each other with better integration between software and hardware, a strategy that has worked wonders for Apple.
As for Verizon, it needs huge investments to upgrade networks to cope with growing demands for data for everything from this week’s viral video to tomorrow’s self-driving cars.
Bloomberg News (Sept. 5)